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INTRO:In Part One of this series, we talked about how many people have sizable estates. Consequently, when they die and their children (or other loved ones) receive an inheritance, it can be analogous to hitting the jackpot. Today we discover the crucial question you should consider.
A crucial related question is “When is the right time for your children to receive their inheritance outright, with no strings attached?” For clients who have minor or young adult children, I often include a living trust provision that: a) if a child has not reached a certain age when his or her parent (or last parent) dies, the trustee is to dole out trust funds for the child’s needs (e.g. “health, education, maintenance and support”); and b) principal distributions beyond those needs are withheld until the child reaches a particular age, or a percentage at each of several ages. A parent’s decision about the right distribution age(s) may be based on any number of factors, such as when the child will likely handle a substantial distribution responsibly.
Some people choose instead to create a lifetime trust for each child, in which varying standards of distribution may be established, without any mandated age for outright distribution. Besides potentially serving as a “happiness” tool for the children, this option can create helpful creditor protection. This protection can include shielding assets for any married child (or child who later marries) who might otherwise commingle the inheritance with his/her spouse and then later get divorced.
In any event, once a child develops a solid work ethic and starts to experience successes based on the fruits of his or her own labor, the receipt of an inheritance is less likely to create problems. But choosing the right distribution age(s) in your living trust is often difficult and is a moving target. Your children change as do your assets, and perhaps also your objectives. So, it’s important to have your estate plan reviewed regularly by an experienced estate planning attorney. This helps ensure that your trust distribution provisions (among other trust provisions and other estate planning documents) comport with your wishes and the law, as each evolve. It also just might help your loved ones avoid the inheritance “Powerball trap”.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
Mr. Silverman is an attorney with R. Silverman Law Group, 1855 Olympic Blvd., Suite 125, Walnut Creek, CA 94596; (925) 705-4474; rsilverman@rsilvermanlaw.com.
ESTATE & TRUST ADMINISTRATION: Need to find an experienced estate & trust administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, “Summary” Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.